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For Brazil, 7-1 loss hinders World Cup’s greater purpose Add to ...

July 9, 2014 10:45 PM
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Late in the first half of the most humiliating defeat in Brazilian soccer’s storied history, angry fans began chanting loudly and obscenely for the ouster of two people – stunned national team coach Luiz Felipe Scolari and President Dilma Rousseff.

Bosses of teams that play as badly as Brazil did in its shocking 7-1 rout at the hands of Germany in a World Cup semi-final on home ground know that they will soon be looking for a new job and maybe another country.

But pressure will also be ratcheted up on Ms. Rousseff, who has staked considerable political capital on a successful World Cup quieting her critics, boosting consumer and business confidence and carrying her on a tide of good feelings to re-election in October.

The available evidence doesn’t support the economic case for borrowing billions to host the world’s most watched sports event. And the Brazilian team’s surprisingly shoddy performance removes any chance of basking in the public afterglow of a victorious tournament.

With social problems worsening, inflation rising and the economy still stuck in the doldrums, the loss on the pitch is certain to fuel the already heated debate about why the Brazilian government expended so much money on the World Cup, while leaving a host of critical issues to fester.

“You would assume that there’s going to be some kind of backlash,” said Mehran Nakhjavani, a partner and global strategist with MRB Partners in Montreal. People will ask: “What did we do all this for?”

Brazil remains beset by deep-seated structural problems, economic mismanagement, chronic labour strife, a worsening fiscal situation and stubborn stagflation. If anything, its woes have worsened in the wake of massive cost overruns for World Cup stadiums, failed promises to build vital transportation infrastructure, accusations of corruption in awarding contracts and an inability to reignite growth. And construction for the Olympic Games in 2016 will put further strains on the beleaguered treasury and waning public tolerance.

Public-sector strikes and huge street protests seem likely to return with a vengeance in coming months.

Hosting the World Cup in a soccer-mad country “is obviously a pretty good distraction to get people off the street,” said David Rees, an emerging markets economist with Capital Economics in London. “But the bigger picture is that nothing in the economy has changed since before the tournament started. Economic growth is very weak. Inflation’s very high. Interest rates are going up. All of those gripes that people had before the tournament are still there.”

As a result, the market “will start perceiving that there may be up to an even chance that she [Ms. Rousseff] might be removed; whereas, frankly, six months ago there was a negligible chance that she would lose the election,” Mr. Nakhjavani said.

The crushing loss to Germany won’t have much of a direct economic impact. Most of the boost from the tournament showed up in previous years, when the lion’s share of public spending on stadiums and other infrastructure was committed.

Mr. Rees and other economists have estimated the increased consumption related to the tournament itself will add no more than 0.1 to 0.2 per cent to GDP, which isn’t forecast to grow by much more than 1 per cent this year. “So the numbers are pretty negligible.”

What has gone up sharply, though, is inflation. Consumer prices climbed 6.52 per cent in the 12 months to the end of June, from 6.37 per cent the previous month. That puts the rate slightly above the central bank’s upper target of 6.5 per cent, although analysts attribute part of the increase to juiced up airline, hotel and other tourism-related prices for the 32-day soccer extravaganza.

After Tuesday’s loss, Ms. Rousseff took to Twitter to bolster the spirits of her shocked nation. “As all Brazilians are, I am very, very sad for the defeat,” she said in a series of posts. “I feel this intensely, for all of us fans, and for our players. But let’s not let ourselves be broken.” She went on to exhort Brazilians to “get up, shake the dust off, and get over it.”

If they don’t – and if the economic trends don’t soon turn in her favour – her own political career could end up as shattered as her nation’s soccer dreams.


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